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Fed Gave Banks Eye-Popping Emergency Loans, Without Telling Congress
An anonymous reader writes with this excerpt: "The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates, Bloomberg Markets magazine reports in its January issue."
$13 billion? Meh. Drop in the ocean. When we're all short of trillions, what's a few billion between friends?
That isn't capitalism, it's Crony Capitalism. Our political class has become so corrupt they can't even see the problem.
For in politics, as in religion, it is equally absurd to aim at making proselytes by fire and sword. - Publius
Jon Stewart covered this topic quite well the other day. So essentially we (US Treasury) loaned the banks money at 0.01% and then they loaned us (US Treasury) the money back at a higher rate. WTF?
"We make our world significant by the courage of our questions and by the depth of our answers." Carl Sagan
It's called Corporatism. The word "capitalism" doesn't belong anywhere in describing the concept.
The real issue here isn't that the Fed made money available, but the disparity of interest rates between that at which the money was available to select parties and that which the open market would bear: that let the banks borrow massive quantities at virtually no interest, only to lend it back out at much higher interest rates. Pure arbitrage between the "emergency" funds' near-zero interest rate on a restricted market and the open market's willingness to pay interest. It's not even clear that the banks taking the loans were unhealthy--they may have just recognized the profitability of free temporary money that could be loaned out for more than it cost (arbitrage). The Fed basically just shoveled profit to the banks. This isn't to say that the Fed didn't get all its loaned money back -- that's irrelevant. They knew full well that they were creating an artificial market for a select group of players and in direct opposition to the preexisting open market, and that they were creating a textbook case of arbitrage that could only profit the participants with access to the fed funds.
If someone doesn't go to jail for this, it'll be very hard not to listen to the anti-regulatory, anti-government fringe loonies. This is exactly what they've been squawking about for years. This is the kind of move that destroys the people's trust in the government's ability to regulate the markets: there's no way to see this except as blatant corruption and cronyism. That loss of trust, in the long run, is the most important fallout of this story. If this country is going to recover economically, there's going to have to be a sea change in ethics on both sides of the markets, both the money-making side and the regulatory side (and, yes, we still need both), and its going to have to be a credible change, not just a veneer, to restore confidence in the form of capitalism we claim we practice (and obviously no longer do).
That isn't capitalism, it's Crony Capitalism. Our political class has become so corrupt they can't even see the problem.
This isn't communism. It's Maoism. It's Stalinism. Get it? Theoretical ideals go out the window when they hit reality. Any ideology that denies reality is doomed to failure, not to mention embittering its adherents or resulting in significant cognitive dissonance and rationalization.
You sort of beat me to it, but I think the best word for what we have is simply cronyism. That gets you down to one -ism that describes it all. It applies mostly to corporations, but if you use the word cronymism it covers union corruption too. Anybody who opposes cronyism should be just as upset about the way bondholders were screwed in favor of unions during the GM bankruptcy as they are about the way banks are profiting.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
It seems that the Fed is the only organization in America that would rather solve problems than score political points. From all accounds, they saved the economy from a liquidity crisis that would have shut down every business in America. I say, horray for the Fed!
http://www.geoffreylandis.com
And before you bemoan corporate cronyism, that isn't the only problem. We give 100% of federal revenue to the old and the poor these days
Huh?
Do you mean social security? Let me remind you, that's not a hand-out; it's paid for. And it's not "100% of federal revenue".
In any case, if you're looking at the US budget, Defense, not "the old and the poor," is the largest share. Here's the discretionary portion of the budget: http://oranges-world.com/the-federal-budget.html
http://www.geoffreylandis.com
--soapbox--
I'm speaking strictly from personal experience with my small business (hardware store employing 30 people) and what I hear from other small business owners both locally and in the hardware industry around the country, but the banks don't appear to be loaning anyone anything lately. Even with the Fed pumping money into the system they still aren't willing to loan it out to small businesses or individuals. Money is going to money, and that's doing nothing to help the businesses and individuals that are struggling.
--end-soapbox--
"We make our world significant by the courage of our questions and by the depth of our answers." Carl Sagan
In fact this is exactly the OPPOSITE of the free market.
The emergency loans were uncapitalistic government interference that denied market forces the chance to punish these boys with failure like they deserved.
Especially since those same banks wouldn't have hesitated to foreclose on their own debtors.
Looks like it was more than that. "Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said."
Is the counterfeiter considered rich?
They are thieves. Don't stigmatize them for being rich, stigmatize them for being thieves. Many people become rich, some fabulously so, by legitimate means, and in so doing do a great service to the rest of humanity. Don't conflate them with these "people".
30 years of corporatism has largely eliminated upward mobility.
The easiest place to see this is not with income disparity.
Instead, look at the disparity between the growth in corporate profits and the growth in employee wages.
Companies have been making huge profits and *not* trickling it down to their workers in the form of higher salaries.
[Fuck Beta]
o0t!
Capitalism isn't capitalism and will never be.
Capitalism inevitably results in a few monopolies destroying capitalism. It's not a self sustaining economic structure.
So we prop it up here and regulate it there to try and keep it under control and from over-merging and consolidating like the blog consuming our entire economy.
Then the libertarians claim that capitalism needs to be free of oversight so they scale back the watch guard every decade or so and the beast grows. Then it steps on something we all treasure and the public pushes back to shorten its leash. And so on and so forth.
If we had capitalism (which we never really have) then we would probably have a handful of mega-corporation that looks quite a bit like the government with a bunch of little niche organizations operating in their shadows.
Capitalism without corporations would just shift the corporatism to a plutocracy where a few wealthy individuals control large portions of the economy. So really corporatism is just a short sighted complaint about our current form of capitalism.
Functioning economies only really function when you use the useful parts and try and mitigate the problems through splicing in hybrid solutions. If raw capitalism results in massive income inequality and hardship for the majority then you splice in a little social security communism.
Capitalism was the economic foundation of a successful post-industrial economy. The age of the cheap widget. We were able in the 30s to temper most of its ills through infused socialism. Europe took it a step further in many respects.
But we're now leaving the hay day of capitalism and entering the information age. I don't think capitalism will function in this new era. I think within 100 years trying to fit capitalism to an information economy would be like trying to sell a spotify customer on the joys of FM radio.
Expect the composition of our economic philosophy to change dramatically. What will harm us probably more than anything will be a nostalgic ideological insistence to use solutions for problems we no longer face.
Indeed. I am a capitalist (I own two small businesses, that while things are way tougher today, are still in the black). I do not understand why other capitalists are mocking the OWS crowd. What those people are mostly protesting is corporatism, and that corporatism is hurting capitalists like me.
.25%. US Treasury bonds are 2%+ on a 5-year not. Banks are borrowing money from the Fed at .25%, and then lending it to back to the government at 2%+. They are literally conjuring profits out of thin air. And we can't get in on that action because we're not a huge bank. That ain't capitalism...that's corporatism, and it's hurting every small business in america.
For instance, if I need a loan to expand my business today, it's really, really hard to get, even with an 800+ credit score and good financials. Lending rates are way down. Banks aren't lending anybody money. Why? Prime is
We don't have a state-run media we have a media-run state.
You know he'd shut that shit down. Clean up the Fed, slash military expenditures, get us out of the wars. I doubt anyone else would do it.
http://youtu.be/HawiHvxloms
"The ability to delude yourself may be an important survival tool" - Jane Wagner -
But capitalism IS possible. We had it in the US from the end of Reconstruction until 1913, and had a shadow of it for much longer than that.
Jeez, what kind of wacky history books have you been reading?
I guess Andrew Carnegie, JP Morgan, John Rockefeller, were just poor innocent capitalists who lobbied against the government to remove tariffs on steel, broke up their own trusts willingly, and didn't organize collective actions.
No, it was created by Wall Street banks in order to save their asses when they screwed up and pump the leverage up too high. That's what it does.
The people who created the Federal Reserve were Wall Street:
http://en.wikipedia.org/wiki/Jekyll_Island#Planning_of_the_Federal_Reserve_System
Paul Warburg - Kuhn, Loeb & Co. (Rothschild) - Lehman Brothers
Frank Vanderlip - National City Bank of New York - Citibank
Henry P. Davison - JP Morgan
Benjamin Strong - JP Morgan
Charles D. Norton - First National Bank of New York - Citibank
Bank runs and failures prevent banks from becoming Too Big To Fail, and taking down the entire world economy. Which they did just as soon as they were able to ramp up the leverage (backed by the FED) during the "roaring" 1920s (can you say Credit Bubble?) until the inevitable result ... The Great Depression, Hitler, World War II etc.
Banks are fundamentally unstable organisations, they operate through leverage so small negative changes cause catastrophic results, and central banks as lenders of last resort provide insurance, which allow banks to lend with higher leverage than they would if they had no insurance. The losses are obviously then socialised. This is highly desirable if you happen to be a Wall Street banker. Lucky they've got one then eh?
That is, central banks make the problem bigger. Tada, here we are again. Great Depression? Greater Depression? Greatest Depression? Are we going to see World War III as the results continue to roll round the world?
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